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Springboard To Effective Relief

Another recent judgment(1) granting ‘springboard’ relief, QBE Management Services (UK) Ltd v Dymoke and others(2) makes encouraging reading for employers anxious to protect their business when either an individual employee leaves or a team moves to join competitors or set up in competition.

In this situation there is a tension between the public interest of allowing people to work freely after the termination of their employment on the one hand and on the other, the interests of the employer in protecting its confidential information and business connections.

In the absence of any contractual restrictions an employee can on leaving his employment set up a business in competition with his former employer or join his employer’s competitors. If the employment contract contains any post-termination restrictive covenants, they will only be enforced by the court if they are found to be reasonable.

As for the implied terms in a contract of employment, such as those imposing duties of fidelity and good faith, these end with the termination of the employment, apart from the duty of confidence which survives to a limited extent in relation to information in the category of ‘trade secrets’ or highly confidential information. It is not always easy to be sure that specific information will be held by the court to fall within that category(3) and a confidentiality clause, although useful evidentially, may not widen the protection.

Springboard injunctions

However, even if there are no effective contractual post-termination restraints, if former employees can be shown to have gained an unfair competitive advantage as a result of unlawful acts in relation to the proposed competitive activity carried out while they were still employed, springboard relief can provide an effective remedy to deprive them of that advantage.

Confidential information

The springboard injunction developed initially to deprive a former employee of a competitive advantage unfairly gained from a misuse of confidential information while he was still employed, even though the information was not within the definition of ‘trade secrets’ or highly confidential information.

In Roger Bullivant Ltd v Ellis(4) an ex-employee was restrained for a limited period from contracting with any person he had approached named on his former employer’s customer card index which, in breach of his duty of good faith, he had removed when he left to set up in competition. This was even though this information was not within the category of ‘trade secrets’ or equivalent.

Preventing unlawful competitive advantage gained from other breaches of contract

The judgment in QBE follows recent authorities in confirming that springboard relief is also available where the wrongdoing from which the defendant has obtained an unfair competitive head-start, involves other past breaches of contract and not just misuse of confidential information, for example if the employee had solicited customers while still in employment.

QBE – the facts

The individual defendants were senior employees in QBE’s marine insurance business. They resigned in April 2011 saying they were setting up in business with the fourth defendant company (‘PRO’). Shortly after there was a spate of further resignations by more QBE employees who also said they were joining PRO. A first interim injunction was obtained enforcing garden leave obligations and post-termination restrictions. QBE had understood that the individual defendants had been head hunted by PRO. However disclosure of documents indicated substantial unlawful conduct by the defendants during their employment and on this basis QBE secured a second interim injunction extending protection on a springboard basis until trial.

QBE – the judgment

At trial the judge found that the defendants had been involved in numerous breaches of their duties owed to QBE during the course of their employment in a covert campaign to acquire QBE’s people and business for the new venture, including solicitation of employees and customers, misuse of confidential information, and failure to disclose these activities to QBE. Although finding that the non-competition covenants in the contracts of the more junior employees could not be enforced, the judge granted a final springboard injunction against each of the defendants restraining the launch of the new business until April 2012, 12 months after the resignations and two months after the date when most insurance renewals for 2012 would take place. The launch of the new business by that date was the ‘main prize’ and advantage the defendants had sought unfairly to gain, would not have been able to gain but for their unlawful activities and would gain unless restrained.

Key points

The judgment is helpful for employers in a number of respects;

It is further authority that the springboard jurisdiction is not limited to cases involving misuse of confidential information but can be available where there have been other breaches of contract and fiduciary duties during the currency of employment. The emphasis is on the wider principle that the court may grant an injunction to deprive a wrongdoer of the fruits of his wrongdoing. So when an employee has left or a team has moved to set up in competition an urgent question will be whether there was any unlawful activity in preparing for this while they were still employed.

It indicates that the ‘main direction of travel’ of recent cases is towards imposing a tighter standard of good faith expected of employees in deciding what may be unlawful conduct particularly in the context of team moves, for example ‘discussions between employees as to proposed concerted competitive activity will rarely if ever be acceptable’ and in relation to the circumstances in which there may be a duty to disclose an ongoing competitive threat to the business. Similarly a reference is made to a ‘tightening of the law’ in this area in relation to directors and senior employees who may also have a fiduciary duty of disclosure, endorsing the view that they ‘ought to disclose any action at all, if taken by others that will lead to competitive activity and any action of their own, as soon as the irrevocable intention to compete is formed (unless they resign immediately)’ .(5)

It confirms that springboard relief can be available as a final remedy, not just as interim relief.

It discusses the principles to be applied in assessing the length of the injunction by reference to the time it would have taken to achieve lawfully what had been achieved unlawfully.

It found that the appointment of head hunters by PRO was a ‘fig-leaf’ to conceal the defendants’ involvement in the recruitment process, a device courts will now be alert to.

It demonstrates how important disclosure of documents can be in these cases. The judge said that it was evident that the defendants ‘did not envisage that many of their candid exchanges would see the light of day’. The documents ‘told their own story’ which ‘accords closely with the claimant’s case’.

Conclusion

QBE and other recent judgments show what an effective and flexible remedy a springboard injunction can provide against competitive activity where it can be established that there was unlawful conduct before the employment ended and indicate a greater willingness by the courts to grant this relief in appropriate cases.

Also of interest, having decided that damages would not be an adequate remedy and that a final springboard injunction was appropriate, the court went on to consider whether there was loss and damage apart from the matters to which the injunction related for which QBE should be compensated and awarded damages of over £300,000 for the cost of pay rises to stem the flow of departures, recruitment costs to fill vacancies and temporary employment costs in the meantime.

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